Summary
Live Nation's pending deal with Madonna sets another signal for the live entertainment industry. The future for Live Nation is a bit unclear. Will they successfully manage ticketing after their Ticketmaster deal ends? Now they are signing major artists in what can be considered an attempt to extend a vertical integration strategy all the way to the content provider.
Analysis
Live Nation appears to be implementing a full vertical integration strategy. Given the past few years has produced minimal profit for Live Nation these actions are not totaly unexpected. The question is expertise. This recent action to secure the content (Madonna deal) comes with great risk given the other pending actions.
In the past 60 days Live Nation had singled it plans to leave Ticketmaster when its contract ends in 2008. The ability to manage the ticket distribution networks is a significant operational undertaking. Now at the other end of the entertainment supply chain they are looking to lock in the content provider. Each of these actions have distinct skill sets which are not found in concert promotion.
The WSJ's article has provided some terms on the Madonna deal. It is likely they will need to partner with a major label for distribution of Madonna's music. The WSJ states "The deal carries significant risks for Live Nation. People in the music industry estimate that at current recorded-music prices, the promoter would have to sell about 15 million copies of each of its three albums to make back its investment on that piece of the deal alone." Based on past performance and current market trends this unlikely they can sell 15 million copies per album.
Lastly, this deal could inhibit Live Nation to act strategically on pending and existing projects. Look for a formal announcement from Live Nation to confirm the details in the coming days or weeks.
